Govt withdraws higher surcharge tax on FPIs and domestic investors

Union Finance Minister Nirmala Sitharaman on Friday announced a slew of measures trying to pump-prime the economy and assuage concerns of investors as well as corporates arising out of higher taxes and also tax review cases, even as she made a push to reverse the auto sector slowdown.

The Finance Minister withdraw enhanced surcharge levied on long and short-term capital gains, introduced a transparent mechanism to end alleged tax harassment of businesses, tried to ease liquidity flow to make loans cheaper in order to boost consumer demand and also unveiled certain steps to boost demand for cars to address the slowdown in the auto mart.

Data showed FPIs have pulled out Rs 23,000 crore from domestic equities in July and August, after the Budget proposal to levy a surcharge on higher tax-income groups affected 40 per cent of FPIs, operating as trusts or AoPs, and made investment in Indian equities unattractive.

Besides withdrawing the enhanced tax surcharge on FPIs and domestic investors ans restoring the taxes to pre-Budget position, the Finance Minister said Rs 70,000 crore will released upfront to PSU banks for additional credit facilities. This will enable release of Rs 5 lakh crore liquidity in the market, she said.

Key Highlights

The FM said NHBs will release Rs 20,000 crore additional liquidity to HFCs. The FM also promised to unveil some measures to address concerns of home buyers next week and another set of measures over the next few days. The FM also announced measures to speed up GST refunds to companies, and said all old GST refund cases will be settled within 30 days while all new cases from now on will refunded within 60 days.

Industrialists said the measures should help turn around mood and sentiments of both investors and industry. "The sentiment will change because of what have been announced today. We need to see this also get transmitted to customer level," said Pawan Goenka, MD of M&M.

Attempting to quicken credit flow to consumers, the FM said NBFCs can now use Aadhaar-enabled KYC for onboarding customers. Sitharaman said banks have decided to pass on any MCLR rate cut in full. They will also launch repo-linked loan products.

To boost demand for auto sector, FM said all BS-IV vehicles purchased up to March 31, 2020 will remain operational for their entire period of registration. The revision of one-time registration fee has been deferred till June 2020. Additional 15 per cent depreciation will be allowed on any vehicles acquired from now till March 2020, raising it to 30 per cent in total. To boost demand for cars, the government has also lifted the ban on purchase of new vehicles by government departments to replace old ones. The government will also consider measures, including a scrappage policy, to boost demand.

Trying to boost the capital markets, the FM said the government would soon take steps for launch of credit default swap funds. She promised to make the bond market conducive for investors. The depository Receipt Scheme of 2014 will be operationalised by Sebi soon, it said.

"Pre-filing of income-tax to become a reality soon," Sitharaman said, while adding that faceless tax scrutiny will begin from Vijay Dashami. Physical tax assessment will happen only in random cases. She said reduction of GST returns and simplified forms will be unveiled soon and the refund process will be made automatic.

Trying to address industry concerns over tax-related and other litigations, the FM said over 1,400 cases for corporate offences withdrawn. The government does not want to pursue anything in terms of prosecution.CSR violations will no longer be treated as criminal offence. Instead they will be treated as civil matter. A dedicated cell will also be set up at the CBDT to address the tax problems of startups.

All I-T orders, notices, summons etc now shall go through a centralised system from Oct 1, 2019. "This will ensure no anomaly between what is in paper and what is sought," she said. "Any notice that does not go through the central system will not be legal. All old I-T notices to be cleared by Oct 1, 2019, and if required will be reissued through the central system. No officer will be acting on them independently. No tax officer will be acting on them independently."

She said the government will take a risk-based approach in dealing with taxpayers. As many as 16 offence sections have already been into shifted to monetary penalties. "We are more in favour of compounding of offence instead of prosecution. The government does want to pursue anything in terms of prosecution. CSR violations will not be treated as criminal offence, instead they will be treated as civil matter," the FM said

Trying to boost the job-creating MSME sector, the FM said banks will issue improve, transparent processes for one-time loan settlements. "Banks will soon launch a checkbook approach for one-time loan settlement of MSMEs as well as individual borrowers."

In a move to address risk aversion at banks in taking lending decisions, the FM said IBCs at banks will be empowered to classify cases for vigilance and non-vigilance to ensure no harassment of bankers making honest decisions.

Sitharaman said that her government did not forget reforms agenda after being re-elected. "Treating reforms as continuous endeavour," she said. #casansaar (Source - PTI, Economic Times, PIB)